Opinion
No. 60212-8-I.
April 28, 2008.
Appeal from a judgment of the Superior Court for King County, No. 06-2-31920-6, Jeffrey M. Ramsdell, J., entered May 30, 2007.
Affirmed by unpublished opinion per Appelwick, J., concurred in by Cox and Lau, JJ.
The commissioner of the Employment Security Department awarded unemployment insurance benefits to John Lockie after termination of his employment with Network Communications, Inc. Network appeals, claiming that the terms of Lockie's employment met the criteria for exemption from unemployment benefits as either an independent contractor or a "newsboy." We affirm.
Facts
Network Communications, Inc., publishes free real estate publications, including the Apartment Finder. These publications are distributed weekly to grocery stores, convenience stores, offices and beauty salons. In June 2005, John Lockie became a "facilitator" for Network. He signed a contract agreeing to status as an independent distributor, rather than an employee. Under this contract, Network did not pay unemployment insurance taxes, benefits, Social Security, or income tax withholding.
Lockie's job consisted of three main functions — auditing, soliciting, and delivery. Lockie audited routes to verify delivery of the publications, determine the number of publications at each location, examine the condition of the kiosks or racks that held the publications, and evaluate whether additional publications were needed at the site. Lockie estimated that he spent 40 percent of his time auditing sites. Soliciting new locations for the publications occupied another 40 percent of his time. He went to establishments like beauty salons or restaurants to inquire whether they wanted to carry the free publications. He solicited businesses to offer the magazines in exchange for free internet advertising. Finally, Lockie substituted as a delivery driver about 20 percent of the time. Also, Lockie periodically assisted when the distribution manager was out of town by helping the delivery drivers obtain the correct publication for delivery.
Every Monday morning, Lockie would report to the Network offices for his assignment and his supervisor gave him a time frame in which to perform the assignments. According to Lockie's testimony, his supervisor might tell him
I want you to audit Greenwood, perhaps had 140 different stops. I think that will take you two days, meet me here Wednesday morning with the routing sheet. . . . After I finished that particular task on Wednesday [he] would say we need new business in Federal Way, Kent, Renton, Auburn, any number of different places.
His boss might also give him a goal of placing the publications in a specified number of new locations in a particular geographic area. Lockie was told the types of locations to target and places to avoid. After completing his tasks, Lockie returned paperwork describing the results of his audits or solicitation. Lockie checked in almost daily and would meet with his manager at least two other times during the week to return this paperwork and receive new assignments.
Lockie used his own car to drive to his assignments. He received reimbursement for copying expenses and a temporary $20 gas surcharge when the price of gasoline rose. Network provided the distribution racks and kiosks that displayed the publications in each location.
In addition to his job with Network, Lockie published and distributed a novel to independent bookstores. He had a business license as a sole proprietor for book publishing and editing. Before beginning with Network, Lockie published a novel with investors. He also solicited other manuscripts for publication. He contracted with people in the entertainment industry to review, edit, and give opinions on various materials.
After termination of his employment, Lockie applied for unemployment insurance benefits. The Employment Security Department denied benefits, but an administrative law judge (ALJ) reversed the determination and awarded benefits. The Employment Security Department commissioner affirmed the ALJ. The King County Superior Court also affirmed the decision. Network appeals.
Discussion
The Washington Administrative Procedure Act (WAPA) governs the judicial review of a commissioner's final order. RCW 50.32.120; W. Ports Transp., Inc. v. Emp. Sec. Dep't, 110 Wn. App. 440, 449, 41 P.3d 510 (2002). As the appellant, Network has the burden of demonstrating the invalidity of the agency's decision. RCW 34.05.570(1)(a). The appellate court applies the standards of the WAPA directly to the record before the agency. W. Ports, 110 Wn. App. at 449. We review the administrative findings of fact for substantial evidence; questions of law are reviewed de novo under the error of law standard. Id. at 449. The application of the law to the facts is a question of law reviewed de novo. Tapper v. Emp. Sec. Dep't, 122 Wn.2d 397, 403, 858 P.2d 494 (1993).
Under the Employment Security Act, "the decision of the commissioner shall be prima facie correct, and the burden of proof shall be upon the party attacking the same." RCW 50.32.150. Since the purpose of unemployment compensation is to reduce involuntary unemployment and ease suffering, the Act is construed liberally in favor of the unemployed worker. RCW 50.01.010; W. Ports, 110 Wn. App. at 450. This liberal construction "requires the courts to view with caution any construction that would narrow the Act's coverage." W. Ports, 110 Wn. App. at 450. Also, "exemptions from taxation statutes are strictly construed in favor of applying the tax." Id. at 451.
I. Exempt Employment Under RCW 50.04.140
The Act provides unemployment insurance benefits for individuals who perform services for an employer, unless those services meet the criteria for exception from the definition of employment. The employment is exempt if:
(1) (a) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his or her contract of service and in fact; and
(b) Such service is either outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of business of the enterprises for which such service is performed; and
(c) Such individual is customarily engaged in an independently established trade, occupation, profession, or business, of the same nature as that involved in the contract of service. RCW 50.04.140(1)
Exemption from unemployment compensation benefits requires the presence of all three of these factors. W. Ports, 110 Wn. App. at 452. Network fulfills none of these criteria.
A. Employer Control
The first factor entails "determination of whether a worker is free from direction or control during his or her performance of services." W. Ports, 110 Wn. App. at 452. If the employer has the right and ability to direct and control the details and methods of the work, the employee is not free from control. Jerome v. Employment Sec. Dep't, 69 Wn. App. 810, 816-17, 850 P.2d 1345 (1993).
Several cases give examples of direction and control that negates this factor. In Penick v. Employment Sec. Dep't, 82 Wn. App. 30, 43, 917 P.2d 136 (1996), a trucking company had to pay unemployment benefits to drivers who could choose their own routes and driving hours, and bring their own passengers. But, the employer exercised control because it determined job assignments, sanctioned drivers for tardiness, required drivers to check in daily, maintained the right to terminate for unsatisfactory performance, and required drivers to clean the trucks. Id. See also W. Ports, 110 Wn. App. at 454 (employer owed benefits to a trucker who "was required to keep his truck clean, to obtain Western Ports' permission before carrying passengers, and to call or come in to Western Ports' dispatch center to obtain assignments not previously scheduled"). Similarly, clam diggers were not exempt from unemployment insurance benefits when the employer selected the location of the digging, and supervised the quality of the digging and clams recovered. Schuffenhauer v. Dep't of Emp. Sec., 86 Wn.2d 233, 237, 543 P.2d 343 (1975). Also, food demonstrators were considered under the direction and control of an employer who instructed them on how to prepare food, demonstrate the product, dress, and conduct themselves at presentations. Jerome, 69 Wn. App. at 816-17. The employer reviewed their performance and reports, and could unilaterally decide to stop referring jobs to a demonstrator. Id. at 817.
Network exercised some types of the direction and control highlighted in the cases above. Like the truck drivers, Lockie received his job assignments and had to check in regularly — usually daily — to update his supervisor and receive new orders. Like the clam diggers, Network directed Lockie's work by selecting the areas that required auditing or solicitation. For soliciting new locations, the supervisor also told Lockie the number of new placements needed and type of sites to target, as well as the geographic area. While Lockie could choose the order in which he audited the locations, or the exact sites for solicitation, Network provided specific guidance on the performance and results needed. Moreover, Network also established Lockie's time frame for performing these tasks. Lockie had to update his supervisor on his progress with the tasks, and fill out and return paperwork reporting the details of every audit and new placement. All these details demonstrate that Network provided substantial direction and oversight, therefore Network fails to show that Lockie was independent of direction and control.
B. Outside the Usual Course of Business or Place of Business
Under the second factor for determining exemption, an employee must either provide services outside the usual course of business or outside the places of business of the employer. RCW 50.04.140(1)(b); Penick, 82 Wn. App. at 43. Only one of the alternatives must be shown to meet this criterion. In re Assessment of Contributions or Interest Against Miller, 3 Wn. App. 503, 506, 476 P.2d 138 (1970).
Network argues that its usual course of business is publishing, not delivery of publications. According to the commissioner's findings,
Network's business includes the solicitation of advertisements for its publications, printing its publications, and the distribution of its publications. Distribution of the publications includes the acquisition of locations at which the publications will be available for the public . . . placement of the kiosks or racks in which the publications are placed, the delivery and placing of the publications in the kiosks or racks from which the public may take them, and picking up the publications which are outdated.
The Department contends that this is an unchallenged finding of fact, and therefore a verity on appeal. But, the Department is incorrect — Network does assign error to the conclusion of law that designates this finding. The order erroneously includes this definition as a conclusion of law. Instead, this description of Network's business is actually a finding of fact. Findings of fact erroneously designated as conclusions of law are reviewed for substantial evidence. Valentine v. Dep't of Licensing, 77 Wn. App. 838, 846, 894 P.2d 1352 (1995).
"`If a determination concerns whether evidence shows that something occurred or existed, it is properly labeled a finding of fact. . . .' However, `if the determination is made by a process of legal reasoning from facts in evidence, it is a conclusion of law.'" Inland Foundry Co., Inc. v. Dep't of Labor Indus., 106 Wn. App. 333, 340, 24 P.3d 424 (2001) (internal citation omitted) (quoting State v. Niedergang, 43 Wn. App. 656, 658, 719 P.2d 576 (1989)).
According to testimony, Network may employ contractors to deliver the papers, but as part of its business, the company solicits locations to carry the publications and oversees the distribution to various locations. Susan Deese, senior vice-president and general counsel for Network testified that the Real Estate Book is a free publication distributed throughout the country. She further stated that "[w]e operate by having people deliver our publications to racks that are located on the streets. And . . . there's a category of folks . . . that are required to assist and audit what those newspaper delivery persons are doing." Lockie testified that Network "solicit[s] and distribute[s] certain free publications in the state of Washington." Given the information presented during the hearing, substantial evidence supports the commissioner's finding that Network engages in both the publication and distribution of free real estate publications. Lockie's main job functions involved auditing the distribution of publications and soliciting new locations, therefore, Lockie performed services within Network's usual course of business.
Since Network need only meet one alternative for the second factor, Lockie may still be exempt from unemployment compensation if he worked outside Network's usual places of business. Lockie's job required him to travel the area to audit and solicit locations. He spent the majority of his time away from Network headquarters. But, he did visit the office several times a week. Every Monday morning, Lockie reported to the Network offices for his assignment. He would meet with his supervisor at least two other times during the week to return paperwork and receive new assignments. In addition, Lockie periodically filled in for his supervisor by going to the office to oversee the distribution of materials to the drivers.
While most of Lockie's work occurred off-site, he went to Network's usual place of business several times each week. Network contends these visits were merely incidental and should not amount to enough time at Network's place of business to defeat this factor. While Lockie's visits to Network to receive his assignments and update his manager may have been incidental, he had more significant contact with the Network warehouse. Several times during his tenure with Network, Lockie substituted for his manager. If the distribution manager had to leave town for a meeting, Lockie went to Network to oversee the drivers to ensure they picked up their loads for delivery. This oversight activity goes beyond merely incidental visits to the usual place of business. Since Lockie worked at the usual place of business, Network cannot satisfy the second factor required for exemption.
C. Independently Established Work of the Same Nature
The employer must show that the employee "is customarily engaged in an independently established trade, occupation, profession, or business, of the same nature as that involved in the contract of service." RCW 50.04.140(1)(c). This requires evidence of "an enterprise created and existing separate and apart from the relationship with the particular employer, an enterprise that will survive the termination of that relationship." In re the Matter of All-State Constr. Co., Inc. v. Gordon, 70 Wn.2d 657, 666, 425 P.2d 16 (1967).
Several factors can show that a business is independently established.
1) worker has separate office or place of business outside of the home; (2) worker has investment in the business; (3) worker provides equipment and supplies needed for the job; (4) the alleged employer fails to provide protection from risk of injury or non-payment; (5) worker works for others and has individual business cards; (6) worker is registered as independent business with state; and (7) worker is able to continue in business even if relationship with alleged employer is terminated.
Penick, 82 Wn. App. at 44 (citing Jerome, 69 Wn. App. at 815). The Commisioner found that Lockie only met factor three — he used his own car to perform his auditing and solicitation. Although Lockie did have a registered independent business, the commissioner found that this was not determinative because the business did not relate to the services provided to Network. Network challenges this conclusion, contending that Lockie's vehicle and route qualify as his separate place of business, the vehicle and expenses represent investment and equipment, the parties' agreement states that Lockie performs his services at his own risk, and Lockie engaged in several of his own businesses. While these may be true, Network fails to acknowledge that nothing in the record shows that Lockie's distribution and solicitation of publications existed separately from Network or will survive his termination with Network.
Network argues that Lockie's services could transfer to another publication, and an individual need not be engaged in prior business of the same nature to qualify as an independent business because this leads to the result that no newly formed or diversified independent business could satisfy this prong. While Network is correct that the statute does not specify that the independent business must exist before the services rendered to the employer, this argument does not help their position. The commissioner entered an unchallenged conclusion of law that states:
Once again, this statement appears to be a finding of fact erroneously designated as a conclusion of law. Regardless, Network did not assign error to the conclusion of law designating this finding.
[t]he claimant owned and operated a business involved in publishing books. This business was not related to the business Network was in. Except for some brief projects in this business, the claimant did not do any business in book publishing or editing while working for Network. The services provided to Network by the claimant were totally unrelated to and had nothing to do with the claimant's business. . . . There is no evidence the claimant ever solicited business or advertised for business or otherwise identified himself as the owner or operator of a business providing the sort of services he performed for Network.
This conclusion does not include any reference to prior established business. Rather, it concerns Lockie's business opportunities during his employment with Network.
Based on the record, Lockie only engaged in distribution and solicitation services for Network. He did not have a business that existed to do this type of work, outside of the work he did for network. "There is no evidence the claimant ever solicited business or advertised for business or otherwise identified himself as the owner or operator of a business providing the sort of services he performed for Network." The unchallenged findings of the commissioner show that Lockie did not engage in a related independent business during his time with Network. Therefore, even if Lockie used his own investment and vehicle and had his own office, he did not engage in an independently established trade, occupation, profession, or business, of the same nature as his service to Network, as required under RCW 50.04.140(c).
II. Newsboy Exception
The Act includes a specific exemption if a person qualifies as a "newsboy." "The term `employment' shall not include service as a newsboy selling or distributing newspapers on the street or from house to house." RCW 50.04.240. The commissioner determined that Lockie was not a newsboy covered by the statute, because newsboy means "a boy who sells or delivers newspapers." The commissioner also ruled that Network's publications did not qualify as newspapers under RCW 82.04.214, and that Lockie did not distribute the papers from house-to-house, but did distribute them on the street. Network disagrees, claiming that the exemption should not be limited to boys and the publications qualify as newspapers.
This statute was revised in 2007. "The term `employment' shall not include service as a newspaper delivery person selling or distributing newspapers on the street or from house to house." RCW 50.04.240.
The majority of Lockie's work — 80 percent — consisted of auditing and soliciting locations. This did not consist of actual delivery of publications, but evaluation of the display, location, and number of available publications. This is not delivery on the street or house-to-house. Network contends that these job functions do not preclude application of the exemption because auditing and soliciting are integral functions of distributing the publications. Since we must strictly construe taxation statutes in favor of applying the tax, we reject this construction of the statute. The statute only applies to those who supply the newspapers, not those who audit sales locations or solicit retailers. Lockie only spent 20 percent of his time as a substitute delivery driver. He does not qualify under the exception.
Network does not meet any of the exceptions from unemployment compensation. Benefits were properly awarded. We affirm.
WE CONCUR: